Punjab-Haryana High Court
Commissioner Of Income-Tax vs Shadi Singh Darshan Singh & Co. & Anr. on 30 September, 1997
Equivalent citations: (1998)144CTR(P&H)226
ORDER
N. K. AGRAWAL, J. :
The following common question has been referred to this Court in the cases of two assessees under S. 256(1) of the IT Act, 1961 (for short, "the Act") :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in directing the ITO to grant registration to the assessee-firm for the asst. yr. 1978-79 ?"
2. In the case of M/s Shadi Singh Darshan Singh & Co., Khanna, application for registration was filed in Form No. 11 for the asst. yr. 1978-79. The application was rejected by the ITO on the ground that as per the partnership deed dt. 1st June, 1977, there were 11 partners, though the licence to sell country liquor had been issued in the names of 6 persons only. The names of all the partners were not entered in the licence. No evidence was adduced by the assessee before the ITO to show that the other 5 non-licensee partners were not taking part or were not actively engaged in the business of liquor. The ITO noticed from the partnership deed that there was no bar therein against the partners taking part in the business. In the absence of any specific clause in the partnership deed, the ITO took the view that all the partners were entitled to actively engage themselves in the business.
3. In the case of Shadi Singh Hans Raj & Co., Sirhind, Head Office, Khanna also, the ITO refused registration. It was noticed that there were 10 partners in the firm, though licence had been issued to run the business in liquor in the names of 4 of them only. The ITO therefore, treated the business as being run by an unregistered firm for the asst. yr. 1978-79.
The Tribunal allowed the appeals in the cases of both the assessees, taking the view that the registration had been wrongly refused by the ITO.
4. The question which actually arises for consideration is whether registration can be refused to a partnership firm under S. 185(1) of the IT Act on the ground that the person or persons holding licence to run a business in liquor had constituted such firm by adding more persons as partners without permission from the competent authority under the Punjab Excise Act and the rules framed thereunder.
5. A similar question was examined by this Court in CIT vs. Jagdish Chand Walia & Co. (IT Ref. No. 93 of 1984 decided on 29th September, 1997) [reported at (1998) 144 CTR (P&H) 217], and it has been held that a partnership firm constituted by a licensee together with non-licensee partners to run a liquor business cannot be treated to be a genuine firm under S. 185(1) of the IT Act inasmuch as there was a breach of r. 7 of the Punjab Liquor Licence Rules, 1956.
Following the aforesaid view, the question is answered in the negative i.e. in favour of the Department and against the assessee.